RMBS arrears and defaults to rise: Moody’s

Delinquencies and defaults for Australian prime residential mortgage-backed securities (RMBS) will increase slightly in 2016 from their current low levels, according to Moody’s Investors Service.

The credit ratings agency said the hike is due to below-trend economic growth, but “losses will remain low because of the build-up in home equity and de-leveraging”.

Moody’s comments come after its latest quarterly report on Australian RMBS which found that the 30-plus day delinquency rate for prime RMBS was at 1.29 per cent for the December 2015 quarter, up from 1.14 per cent on the September 2015 quarter.

According to Moody’s analyst Alena Chen, this increase was expected for prime RMBS, reflecting higher spending levels in the run-up to the Christmas and New Year period.

“The rise was driven by the performance of prime RMBS issued by major banks, as well as non-authorised deposit-taking institutions,” Ms Chen said.

The report found that for major bank issuers, the 30-plus day delinquency rate increased from 0.94 per cent to 1.15 per cent in the December quarter.

Among the non-major banks, the 30-plus day delinquency rate for regional ADIs rose from 1.91 per cent to 1.97 per cent, while the rate for all other non-majors fell from 0.70 per cent to 0.57 per cent.

The 30-plus day delinquency rate for non-banks was at 2.54 per cent during the December quarter, up from 1.90 per cent in the September quarter.

Meanwhile, the arrears levels of RMBS deals comprising of 100 per cent low-doc loans also increased, with the 30-plus day delinquency rate rising from 3.43 per cent to 4.08 per cent in the last quarter of 2015.

There was also an uptick in the 30-plus day delinquency rate for non-conforming RMBS during the December quarter, up from 3.49 per cent to 4.22 per cent.